Successful ecommerce business models have not yet adapted well to emerging-market conditions. In South Africa, limited access to the internet, combined with expensive data charges make it very difficult to reach a large audience with new online services.
Despite rapid growth in market penetration over the last few years, just 52% of the population in South Africa currently has internet access, compared to 92.6% in UK. But, smartphones are changing that, and for most consumers it’s becoming less of a luxury and more of a necessity to use technology for solving tedious, everyday problems, like keeping in touch with their families or even shopping for groceries.
Timbuktu is an ecommerce start-up founded by Petrus Janse van Rensburg in 2015. With a background in mechanical engineering and software development, Janse van Rensburg had previously worked at Code-for-South-Africa, Springlab, YeboTech, and Iono FM before making the jump to form his own ecommerce company.
Timbuktu is an online grocery store that aims to meet the needs of low-middle income customers, who shop mostly out of necessity and don’t have lots of disposable income for discretionary spending. This requires a new type of business model that can cope with the challenges that come with serving a part of the market that has not been reached by traditional ecommerce services yet. ‘The reason I started Timbuktu,’ explains Janse van Rensburg, ‘is to redesign our ecommerce experience, specifically for these [limited] conditions.’
After research, Janse van Rensburg discovered that most of the low-middle income consumers have Android phones, and yet slow internet, expensive data rates and limited access to broadband internet prevent them from using their phones to their full potential. The Timbuktu founder highlighted that, ‘Basically, there are very few ecommerce companies that scale very well, except for China, in emerging-market conditions.’ He continues, ‘The main reason is that broadband internet hasn’t penetrated far enough and people have to access very slow, very expensive internet connections on their smartphones.’ Obviously, this leads to a sub-standard user experience for ecommerce.
And the stats support his argument, the average monthly cost of broadband in South Africa is more than 10 times higher than in the UK while the UK enjoys a broadband speed that is five times faster than South Africa.
However, the Bureau of Market Research states that 53% of the population in South Africa is classified as poor, yet the emerging low-middle class contributes the most combined income, making them an attractive customer base. So, Timbuktu aims to bring ecommerce to this under-served segment of the market. Janse van Rensburg describes, ‘It’s a very big market. In countries like ours, if you build a solution for the upper class, that’s just a very small population. Most of the market is in the low-middle income segment. So if you can build something that really works for a low-middle income user, you have much bigger market. In South Africa, it’s about 4 million households that we are targeting – these are families that are not living in poverty but are also not rich.’
Timbuktu’s model is very simple and composed of three key methods: Firstly, they are building a mobile-only service, that’s accessed through an app, rather than a regular website, since most people in the target market own smartphones rather than laptops. Secondly, Timbuktu deals with local household products, which means if they expand into other African countries, they can supply local goods and avoid logistical issues with importing goods into lots of different markets. Thirdly, it focuses on a small inventory of grocery products, resulting in a simple user interface.
Understanding that Timbuktu App users tend to have small screens, Janse van Rensburg explains it’s important to start slowly. The grocery store doesn’t list millions of products, just the most popular items for the target market, like potatoes, onions and canned beans.
‘My goal for current year is to get the design to a point where I can see that there is definite traction with a small group of users. As soon as I can see that the service really resonates with people, I can move on and start focusing on growth. But first, I need to make sure I have product-market-fit.’
American entrepreneur and software engineer Marc Andreesen coined the phrase ‘product-market fit’, which means ‘being in a good market with a product that can satisfy that market’. Like all successful business ventures, it’s essential to do the fieldwork and research to make sure you understand the market and the needs.
With this in mind, Janse van Rensburg went out and spoke to people living in the Cape Flats area. He recalls, ‘We didn’t ask them about laptops, mostly we only talked about smartphones. We found that roughly 50 or 60% of our potential clients have Android devices already – and if you look at the stats per-household, then it’s obvious that the market is ready, if only we can provide people with a service that solves real problems for them in a way that fits with their everyday lives.’
In January 2016, Janse van Rensburg trialled his first grocery deliveries using WhatsApp. Then, the following month, moved over to his own Android app. He explains that his focus is getting the design right: ‘My goal for current year is to get the design to a point where I can see that there is definite traction with a small group of users. As soon as I can see that the service really resonates with people, I can move on and start focusing on growth. But first, I need to make sure I have product-market-fit.’
In order for ecommerce to work in this new market, the Timbuktu founder has identified several key innovations that could make his service work, where others have failed before, starting with the interface for browsing the app’s inventory: Janse van Rensburg explains, ‘In our app, you only need to tap and swipe. Other ecommerce apps are usually built around the search box, and rely heavily on text input. But with mine, you just swipe and tap your way through the whole inventory.’
Another innovation is that they rely exclusively on GPS coordinates when setting a user’s delivery location. Janse van Rensburg explains that: ‘A lot of houses on the outskirts of cities have very bad street addresses. Addresses can be ambiguous, and really difficult to pin down on a map.’
Regarding a delivery fee, he says ‘Currently, the consensus opinion is that low-middle income users don’t want to pay extra for delivery. However, if you talk to them about it, they also have to spend money to go shopping because transport is quite expensive. So they typically spend about R30 to R50 per trip to a big grocery store. And the drawback is that they can only buy as much as they can carry. But if you get delivery, you can order a lot of heavy stuff at once. It’s much more convenient, yet it doesn’t have to be more expensive than the status-quo.’
In the near future, once Janse van Rensburg has a proven business model, he wants to expand Timbuktu beyond Cape Town, into South Africa and then branch out further into other African countries such as Zambia, Tanzania and Mozambique. He plans to team up with local partners since other entrepreneurs are already selling groceries through websites there. ‘My strategy would be to work with the existing local entrepreneurs in each country, share my technology, and help them build a big business out of their current operations.’
But keep in mind that the playground of Timbuktu is emerging markets. So, their growth strategy hinges on their ability to scale into a large number of relatively small economies. That’s a different approach from most other local start-ups, which aim to build something locally, and then grow into a larger, first-world market, like the UK or the USA.
Janse van Rensburg estimates the local market in South Africa is worth about R12 billion. He feels the opportunity is there and his goal would be to acquire around 10 million users on his Timbuktu App over the next three years. It’s an exciting prospect.
Maiko is an economics student who will graduate Nagoya University in 2017. Since the age of 9, she has figure skated and has competed in various competitions.
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